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Investing.com -- Europe’s oil majors can deliver a double-digit total distribution yield next year even if Brent settles at $65, Bernstein says, arguing the sector’s cash-flow strength has held up far better than earnings through 2025.
In a note reviewing nine-month results, analyst Irene Himona said that despite a 14.4% drop in crude prices and weaker chemicals margins, companies kept capital discipline intact and generated almost unchanged organic free cash flow.
Adjusted earnings for the sector fell about 22% during that period, as lower oil prices and weak chemicals offsets weighed on results, while refining stayed flat and gas prices improved. Equinor, Shell and BP lagged the sector, and Galp was the only company to post an earnings increase, supported by stronger midstream gas trading.
But despite the sharp drop in profits, cash flow remained markedly resilient, and this represents the central theme of Himona’s views. The sector produced roughly $109 billion of funds from operations in the first nine months, down just 0.9% from a year earlier, while capital expenditure slipped 1.2%.
Organic free cash flow before working capital came in at $50.4 billion, essentially flat, and disposal proceeds of about $11 billion helped cover $53.4 billion in combined dividends and buybacks.
The rise in net debt was driven mainly by a $10 billion working-capital build, Himona said, rather than any deterioration in underlying cash generation.
“On our $65/bbl 2026 Brent, the sector continues to offer an attractive double-digit total distribution yield,” Himona added, a level she sees as well covered by operating performance.
The analyst also challenges the market’s bearish view on 2026 crude balances. She argues that large “missing barrels” embedded in the IEA’s calculations create uncertainty and may ultimately be reclassified as demand, just as occurred earlier this year.
Himona points out that more than half of the IEA’s projected 2025 surplus is made up of these missing barrels, adding that any adjustment “would reduce the IEA’s projected surplus from 2.5mbd this year to a more reasonable 1.1mbd.”
Bernstein maintains a Neutral stance on the oil sector overall but says its 2026 base case supports attractive payouts. TotalEnergies is its preferred name, with Outperform ratings also on BP and Galp, while the rest of its covered stocks remain rated Market Perform.